On 30 August 2017, the Moroccan Parliament ratified the Morocco-Nigeria bilateral investment treaty (“BIT“), which now awaits ratification by Nigeria. This treaty, part of a suite of agreements signed between Morocco and Nigeria at a ceremony in Casablanca in December 2016, is intended to herald a “strategic partnership” at a time when the two countries are embarking on an ambitious joint venture to construct a 4,000 km regional gas pipeline that will connect west African countries’ gas resources to Morocco and ultimately Europe.

The new BIT is particularly noteworthy as it is an example of the radical trend towards treaties that strike more of a “balance” between the interests of the contracting states and their investors in light of recent criticism of investment arbitration. Consistent with regional initiatives on investment treaty reform and in the aim of promoting sustainable development, the BIT includes several notable features safeguarding states’ discretion in enacting regulation and imposing obligations on investors. It also sets out an innovative pre-arbitration procedure for preventing and resolving disputes.

Commitment to sustainable development

In a nutshell, the overarching theme of the BIT is “sustainable development”, a phrase which features three times in the preamble and several more times throughout the operative provisions. For instance, Article 24 (Corporate Social Responsibility) stipulates that:

“… investors and their investments should strive to make the maximum feasible contributions to the sustainable development of the Host State and local community”.

Moreover, the definition of investment includes a condition that the investment contributes to the host state’s sustainable development. This means that states could potentially raise objections regarding sustainability in any dispute, even at the jurisdictional stage.

Reaffirming states’ right to regulate

In line with the focus on sustainability, the BIT guarantees the host state:

“… the right to take regulatory or other measures to ensure that development in its territory is consistent with the goals and principles of sustainable development and with other legitimate social and economic policy objectives”.

This reaffirmation of the “right to regulate” – also mentioned in the preamble to the treaty – addresses a growing concern that investment arbitration could have a chilling effect on states’ powers to regulate in the public interest. It is also in line with recommendations by the UN Conference on Trade and Development (UNCTAD), which has called for carve-outs in investment treaties for the protection of health or the environment in its Road Map for International Investment Agreement Reform.

Similarly, the BIT further provides that each state has the right to take:

“… in a non-discriminatory manner, any measure otherwise consistent with this Agreement that it considers appropriate to ensure that investment… is undertaken in a manner sensitive to environmental and social concerns”.

This appears to confer a broad margin of discretion on each state to introduce new regulatory measures which it “considers appropriate”.

Investor obligations

Consistent with its stated aim to seek “an overall balance of the rights and obligations among the State Parties, the investors, and the investments”, the BIT departs from more traditional investment treaties in imposing a broad range of obligations on investors as well as on states.

Comply with all applicable laws and operate through “high levels of socially responsible practices” (Article 24).

While the BIT confirms that breach of anti-corruption laws may expose foreign investors to prosecution in the host state, investors may also be subject to civil actions in their home state where acts or decisions made in relation to the investment lead to significant damage, personal injuries or loss of life in the host state.

Creation of a Joint Committee and “disputes prevention” provisions

The treaty is also innovative in its dispute resolution provisions. Specifically, it establishes a “disputes prevention” mechanism, overseen by a Joint Committee composed of representatives from the two states, whose primary role is to supervise the implementation and enforcement of the treaty. While the notion of a Joint Committee is not unique – the Comprehensive Economic and Trade Agreement (“CETA“) signed between EU and Canada last year establishes a similar committee – its role in “disputes prevention” is novel.

Under Article 26(1):

“… before initiating an eventual arbitration procedure, any dispute between the Parties shall be assessed through consultations and negotiations by the Joint Committee”.

Despite the reference to “any dispute between the Parties” (that is, between Morocco and Nigeria), these provisions appear to be aimed at investor-state disputes. A state may trigger the procedure by submitting a “specific question of interest” from an investor, after which the Joint Committee will meet (with the participation “whenever possible” of investor representatives) and attempt to resolve the dispute. If no settlement can be reached within six months:

“… the investor may, after the exhaustion of local remedies or the domestic courts of the host State, resort to international arbitration mechanisms”.

Analysis

The Morocco-Nigeria BIT bears the hallmarks of two trends in investment treaties:

The perceived and much-commented “backlash” against investment arbitration as it has developed.

A growth in the number of intra-African agreements, aimed at boosting trade and investment within the continent.

Morocco is a prime example, in recent years concluding new BITs with Mali, Guinea-Bissau, Rwanda and Ethiopia. Certain features of the BIT merit closer examination.

Notably, several of the obligations imposed on investors can also be found in the 2008 Supplementary Act of the Economic Community of West African States (“ECOWAS“), which aims to harmonise investment protections within the 15-member regional bloc. Nigeria is a founding member of ECOWAS, whereas Morocco applied to join earlier this year. The inclusion of these obligations in the Nigeria-Morocco BIT suggests regional efforts at reform are now being followed by national governments. However, while the BIT specifies that breach of investor obligations may lead to liability before domestic courts, it does not expressly address whether such claims may also be raised by a respondent state in arbitration. International tribunals do appear increasingly to admit counterclaims by states, so this may nevertheless remain a possibility.

Furthermore, the Joint Committee and associated “dispute prevention” mechanism are relatively novel elements of the BIT and it will be interesting to see in practice how these are applied. Negotiations through the Joint Committee can only be triggered by one of the state parties. It seems that the onus in discussions is on the state, which “may” make submissions on behalf of an investor. In all cases, if negotiations fail to resolve the dispute within six months, there will be some time before any final arbitration, since the treaty first requires the exhaustion of local remedies.

Overall, the treaty’s emphasis on sustainable development, the sovereignty of the host state to regulate and reciprocal obligations for investors suggest that campaigns by UNCTAD, ECOWAS and other bodies to shape the next generation of BITs are bearing fruit. Such developments are likely to be well received by states, particularly in the developing world. Conversely, the proposed disputes prevention procedure remains novel, and in practice means that, although investors are granted the possibility to commence arbitration, there are various steps to complete beforehand. The BIT’s amendment provisions and the requirement for a periodic review every five years to assess its “operation and effectiveness” provide important opportunities to clarify these issues.

It remains to be seen whether the Morocco-Nigeria BIT will become a new model for investment treaties, particularly in the context of intra-African investment. For the moment, it appears to be an example of an ambitious effort to modernise the balance between investors and states in contemporary BITs.

]]>https://www.hlarbitrationlaw.com/2018/01/the-morocco-nigeria-bit-a-new-breed-of-investment-treaty/feed/0Will life sciences provide a growth injection for international arbitration?https://www.hlarbitrationlaw.com/2017/08/will-life-sciences-provide-a-growth-injection-for-international-arbitration/
https://www.hlarbitrationlaw.com/2017/08/will-life-sciences-provide-a-growth-injection-for-international-arbitration/#respondTue, 29 Aug 2017 13:51:03 +0000http://www.hlarbitrationlaw.com/?p=1736This blog post was first published on the Practical Law Arbitration blog.

The use of international arbitration has expanded over the years to encompass a wide array of sectors. For example, while the majority of financial services disputes still end up in court, many of them are submitted to arbitration. Of the London Court of International Arbitration’s (LCIA’s) caseload in 2016, 20% comprised of such disputes. This was more than either construction or shipping.

This raises the question of which other industry sectors might provide a larger number of arbitrations in the future. One possibility is life sciences.

This industry sector is already the joint fifth biggest contributor to the LCIA’s caseload. It comprises 15% of arbitrations and mediations sent to the World Intellectual Property Organization (WIPO), and various institutions (including the International Chamber of Commerce (ICC) and American Arbitration Association (AAA)) have seen steady growth in the number of life sciences disputes referred to them. There are also reasons to suggest that the number of life sciences arbitrations may increase.

The life sciences industry has a global reach

The life sciences sector is a truly global industry. Life sciences giants frequently expand out of their home markets in search of better growth opportunities in emerging markets. Many of those emerging markets already have their own life sciences companies with significant annual revenues. For example, Mexico, India, Indonesia and South Africa all have pharmaceutical companies with turnover close to US $1 billion.

In addition, the complex supply and distribution chains employed by many life sciences companies often span multiple jurisdictions, as do the joint venture and licensing arrangements that many of these companies utilise.

Arbitration is well-suited for the resolution of disputes arising out of these types of complex, multi-jurisdiction arrangements, particularly given:

The neutrality resulting from neither party submitting to the “home” courts of the other party.

That any resulting arbitral award will be enforceable in any of the 157 countries that are signatories to the New York Convention.

The life sciences industry is growing

The life sciences industry has grown considerably in recent years (and is expected to continue growing). A consideration of some of the factors behind that growth suggests that more growth will likely result in the need to resolve a greater number of disputes.

Considerable growth for many companies has also been achieved through the significant consolidation that has occurred in the market in recent years. For example, in 2015, 236 mergers and acquisitions between pharmaceutical companies were closed worldwide, for a total value of over US $403 billion combined. Not only is this a good indicator of the potential future growth of the sector, it may also lead to further disputes. Again, the complex cross-border nature of many of these mergers and acquisitions is an indication that arbitration is likely to be used as a dispute resolution mechanism.

Further growth potential for the industry lies in the proliferation of newer, innovative companies specialising in biotech and medical devices. As these companies seek to compete or seek synergies with more established players, disputes may arise. Many of these disputes will be well suited to arbitration if the commercial arrangements are multi-jurisdictional or confidential.

Arbitration has other benefits for life sciences companies

There are significant additional benefits to arbitration for life sciences companies which, as they become more widely known, may result in those companies choosing arbitration for the resolution of certain disputes.

One such benefit is the confidentiality of arbitration. In particular, this provides a further level of protection for companies concerned about intellectual property or trade secrets being released in the public domain. For companies whose value can rest on the strength and exclusivity of their intellectual property, this is not an advantage to be overlooked. It has been recognised in certain instances already; for example, in Portugal, specific legislation (Decree Law 62/2011) has been enacted, mandating arbitration for intellectual property disputes in the pharmaceutical sector.

A further advantage is the ability for the parties to appoint arbitrators with the specialised skills required to resolve life sciences disputes. There is an increased trend of arbitration clauses in life sciences agreements requiring arbitrators to have certain qualifications or experience. A number of arbitral institutions (such as the International Centre for Dispute Resolution (ICDR)/AAA) now have panels of arbitrators with specific life sciences experience.

Scope for related disputes

In recent years there have been several investment treaty arbitrations relating to life sciences companies. This is in addition to litigation within the EU which considers the impact of EU competition law on arbitral awards involving life sciences companies. This is not surprising given that the sector is heavily regulated.

In conclusion, life sciences disputes already form a significant number of arbitration disputes and the number of arbitrations in the sector looks set to grow. In particular, while litigation will doubtless remain a mainstay for the resolution of life sciences disputes, the combination of the growth and increasing globalisation of the industry, with the benefits that arbitration offers for the resolution of complex multi-jurisdictional disputes, suggests that there are likely to be more life sciences arbitrations too.

]]>https://www.hlarbitrationlaw.com/2017/08/will-life-sciences-provide-a-growth-injection-for-international-arbitration/feed/0CETA paves the way for Investment Court Systemhttps://www.hlarbitrationlaw.com/2016/12/ceta-paves-the-way-for-investment-court-system/
https://www.hlarbitrationlaw.com/2016/12/ceta-paves-the-way-for-investment-court-system/#respondTue, 06 Dec 2016 12:54:54 +0000http://www.hlarbitrationlaw.com/?p=1655After seven years of negotiations, the European Union (EU) and Canada signed the Comprehensive Economic and Trade Agreement (CETA) on 30 October 2016. One innovative yet controversial aspect of CETA is the establishment of an international court to resolve investor-State disputes under the Agreement. As a result of demands by Belgium’s regional Walloon government, which previously threatened to block the Agreement, the introduction of this court has been deferred until the Court of Justice of the EU determines its compatibility with EU law. Nevertheless, CETA marks the first time that the investment court proposed by the EU has been adopted in a final treaty, in response to various criticisms of the investor-State dispute settlement mechanism (ISDS).

Why is CETA moving away from “conventional” ISDS?

The current impetus can largely be attributed to the sovereign and public backlash against ISDS as it currently exists. The proliferation of investment treaty claims (with 250 such arbitrations currently pending) and proposed “mega-regional” trade deals such as CETA, the Transatlantic Trade and Investment Partnership (TTIP) and the Trans-Pacific Partnerships (TPP) have cast the spotlight on ISDS. Critics, including civil society groups and law makers, have argued:

ISDS is investor-friendly and there exists conflict of interest or bias on part of arbitrators, many of whom are also arbitration practitioners. While statistics from the UN Conference on Trade and Development tell a different story – namely, that most disputes are resolved in favour of States – the perception of bias is real.

ISDS has a chilling effect on new regulatory measures because the threat of investment claims – such as Vattenfall’s pending $4.6 billion claim against Germany arising out of the latter’s phase-out of nuclear power in the wake of the Fukushima nuclear disaster in Japan, and Philip Morris’ claims against Uruguay and Australia over plain tobacco packaging laws intended to reduce the rate of smoking – could discourage governments from adopting new regulations on health, environment, labour relations, etc.

States also object to the impact of investor claims on the public purse, as the average cost of defending an investor claim is estimated at $4.5 million – and may be much higher – with no guarantee of recovering costs even if successful.

In light of these concerns, several States, primarily in Latin America and Europe, have withdrawn from the ISDS system, either by renouncing the ICSID Convention or terminating investment treaties.

The European Commission sees an investment court as a compromise, addressing many of the criticisms while keeping States from turning away from ISDS entirely. Having first proposed the idea in May 2015 in a concept paper, which it later submitted as a final proposal in November 2015, the European Commission’s ultimate aim is a multilateral, multi-treaty court presiding over investment disputes.

How does the EU’s proposal of an investment court differ from “conventional” ISDS?

Building upon the WTO model and pro-transparency trends in arbitration, the investment court provides several notable features, including:

A two-tier system consisting of a first instance tribunal and an appellate tribunal, which is authorized to set aside awards based not only on grounds for annulment outlined in the ICSID Convention, but also additional grounds such as errors of law and manifest errors of fact.

A first instance tribunal composed of judges randomly selected from a roster of 15 members who are prohibited from acting as counsel, party-appointed expert, or witness in an investment dispute during their terms. An appellate body whose composition will be decided at a later stage by an inter-government committee; the European Commission’s 2015 proposal calls for six members, with three randomly selected to hear each appeal.

Full transparency with proceedings and key documents publicly available, in line with (and in some respects going beyond) the UNCITRAL Transparency Rules.

“Loser pays” system under which the losing party will bear the costs of arbitration, as well as authority of the tribunal to reject frivolous claims on a summary application.

Tribunals’ mandate to control the length of proceedings by requiring it to render an award within 24 months of the claim being submitted and explain any delay to this timeframe.

The EU and Canada hope that a permanent roster of pre-selected first instance tribunal members will strengthen the independence and impartiality of arbitrators, and that an appellate mechanism will lead to greater consistency in decisions. The provisions on costs and summary judgment aim to shift the balance in favour of States.

What are the next steps?

Though the ink may have dried on CETA, an investment court is still a long way from fruition. As a result of concessions to the Walloon government, the proposed investment court must pass two hurdles before ever holding court.

First, Belgium will request a ruling from the Court of Justice of the EU (CJEU) on the compatibility of an investment court with EU law. The extent to which the investment court can consider EU law – which is permitted under Article 8.31(2) of CETA, providing that the court “may consider, as appropriate, the domestic law of the disputing Party as a matter of fact” – may be particularly problematic, though any such consideration of EU law by the investment court would not be binding on the CJEU. The relationship between ISDS and EU law is a familiar theme for the CJEU, which has also been requested to give its opinion on the EU’s competence to enter the proposed EU-Singapore free trade deal, as well as the compatibility of intra-EU BITs with EU law (a point of contention not only for EU Member States, but also for the European Commission which has repeatedly called for the termination of existing intra-EU BITs on the basis that they are incompatible with EU law).

And second, the investment court will be excluded from the provisional application of CETA, meaning that it cannot come into effect until ratified by some 38 national parliaments and regional assemblies across the EU. Already, some political parties and pressure groups, which see the investment court as merely the status quo in disguise, are campaigning against it. Belgium’s regional governments have indicated that they will not ratify the ISDS provisions without further details on the code of conduct for tribunal members, the function of the appellate tribunal, and rules on easing the financial burden on small and medium enterprise investors.

Should the investment court overcome these obstacles, practitioners, investors and governments will be watching keenly to see how the new system operates in practice. The Commission intends to expand its proposal to TTIP and other treaties, with a multilateral court as the end goal.

The Court of Appeal’s decision in Sanum Investments Ltd v Government of the Lao People’s Democratic Republic [2016] SGCA 57, which was handed down on 29 September 2016, is discussed below.

Background

While Macau was under Portuguese rule, the China-Portugal Joint Declaration (“Declaration“) was signed in 1987, which provided that Macau would be handed over to China in 1999.

China and Laos signed the BIT in 1993 but the parties did not expressly deal with the BIT’s applicability to Macau after the handover.

In 2007, Sanum formed a joint venture with a Laotian entity for investment in the gaming and hospitality industry in Laos. Disputes between Sanum and the Laotian government subsequently arose.

Sanum commenced arbitration against Laos on 14 August 2012 under the BIT, alleging, amongst other things, that the Laotian government imposed “unfair and discriminatory taxes” on Sanum.

An eminent tribunal with extensive experience of investor state cases was constituted under the UNCITRAL Rules and Singapore was designated as the seat of arbitration. Laos disputed the Tribunal’s jurisdiction on two main grounds:

The BIT did not extend to protect a Macanese investor; and

In the alternative, Sanum’s claims are not arbitrable under the BIT as they are not a “dispute involving the amount of compensation for expropriation [which] cannot be settled through negotiation“.

The Tribunal dismissed Laos’ jurisdictional challenges on 13 December 2013. Laos appealed to the Singapore High Court under section 10(3) of the International Arbitration Act (Cap 143A) which allows for appeals on points of jurisdiction. On 20 January 2015, the High Court overruled the Tribunal. Sanum then appealed to the Court of Appeal on 20 July 2015.

Court of Appeal’s decision

A five-member Court of Appeal overturned the decision of the High Court and upheld the Tribunal’s finding that it had jurisdiction to hear Sanum’s claims. In doing so it applied the customary international law rule known as the “moving treaty frontier” rule (“MTF Rule“) which “presumptively provides for the automatic extension of a treaty to a new territory as and when it becomes a part of that State“. The Court ruled, inter alia, that this presumption was not displaced because the handover of Macau was a foreseeable event at the creation of the BIT given that the Declaration predated the entry into the BIT.

Applying the public international law principle of the critical date doctrine, the Court of Appeal also did not accord any evidentiary weight to diplomatic notes exchanged between China and Laos in 2014, in which the Chinese embassy in Laos agreed that the BIT did not extend to Macau. The Court considered that no weight should be put on those notes as they came into existence after the critical date, being the date on which the arbitration proceedings were initiated, and they were adduced to contradict a position which was established by the pre-critical date evidence – namely that the BIT did apply to Macau.

The Court of Appeal also rejected the Laotian government’s narrow interpretation of the BIT by which Laos contended that the sole type of dispute which may be resolved by arbitration was the amount of compensation for expropriation. Taking a broader and more investor-friendly construction of the BIT, the Court ruled that any claim which includes a dispute over the amount of compensation for expropriation may be submitted to arbitration.

The Court also considered the issue of de novo review of the Tribunal’s award on jurisdiction. Notwithstanding the Tribunal’s expertise on this issue, the Court of Appeal considered that the High Court was not required to defer to the findings of the Tribunal. It concluded that it was “not bound to accept or take into account the arbitral tribunal’s findings on the matter”, irrespective of the arbitrators’ “eminence”, and that the “cogency and quality of their reasoning” should instead inform the lower court’s evaluation of the matter. The Court of Appeal further held that as Singapore was the seat of the arbitration, the Singapore courts were “not only competent to consider these issues, but… obliged to do so“.

Comment

The Court of Appeal’s decision may be seen as pro-investor.

Although Singapore is not a party to the relevant BIT, its courts were prepared to reject the views of one of the signatories (expressed in the diplomatic notes) as to its construction in favour of applying public international law norms by way of the MTF Rule and the critical date doctrine. The same observation holds to its broad and inclusive construction of the BIT.

Its ruling on the de novo standard of review is a welcome confirmation of the Singapore courts’ role as the competent court in not only commercial arbitrations, but also investor-state arbitration. It is a welcome sign that the Court adopted its own path to jurisdiction and did not defer to the eminent international arbitration names in the Tribunal (though it did ultimately reach the same conclusion on jurisdiction).

Singapore is undoubtedly keen to welcome more investor-state cases. The Singapore International Arbitration Centre is poised to release its first set of investment arbitration rules in due course. The Court’s appointment of J Christopher Thomas QC of the National University of Singapore and Locknie Hsu of Singapore Management University to make amicus curiae submissions reflects a desire to maintain the highest standards of jurisprudence.

It is reflective of the potential difficulties with investor-state arbitration that this matter – filed in 2012 in one of the world’s most arbitration friendly seats – has only reached the jurisdiction stage. Those seeking recourse in investor state arbitration need to be prepared for what may be a long game.

]]>https://www.hlarbitrationlaw.com/2016/10/macanese-investor-succeeds-in-reversing-singapore-high-courts-decision-on-jurisdiction-in-its-bit-claim/feed/0Romania to terminate its intra-EU Bilateral Investment Treatieshttps://www.hlarbitrationlaw.com/2016/09/romania-to-terminate-its-intra-eu-bilateral-investment-treaties/
https://www.hlarbitrationlaw.com/2016/09/romania-to-terminate-its-intra-eu-bilateral-investment-treaties/#respondThu, 29 Sep 2016 09:48:20 +0000http://www.hlarbitrationlaw.com/?p=1630On 8 September 2016, the President of Romania agreed to submit to the Romanian Parliament draft legislation approving termination of 22 bilateral investment treaties that Romania concluded with other EU Member States (“intra-EU BITs”). The draft legislation had been initiated on 10 August 2016 by the Romanian Government in an expedited legislative procedure.

The explanatory note to the draft legislation quotes the European Commission’s view that intra-EU BITs are incompatible with EU law and refers to the infringement proceedings initiated on 18 June 2015 against five EU Member States, including Romania, requesting them to terminate their intra-EU BITs. The note further explains that since 2011 Romania has approached a number of EU Member States with a view to terminate intra-EU BITs by consent. However, the responses were not favorable. Therefore, the Romanian Government considered it appropriate to proceed with terminating all of its intra-EU BITs.

Romania’s initiative comes against the background of an ongoing discussion on the future of BITs in the EU. To date only three EU Member States (the Czech Republic, Ireland, and Italy) decided to terminate all or selected intra-EU BITs. However, in 2016 a number of developments took place:

In February, Poland announced that it considers terminating its BITs (see our blog entry here). An inter-departmental team created in May 2016 is charged with reviewing and analyzing Polish BITs (including 23 Polish intra-EU BITs). It is expected to issue a recommendation to the Council of Ministers.

In April, Austria, Finland, France, Germany, and the Netherlands issued a non-paper proposing the conclusion of an EU-wide agreement that would replace pre-existing intra-EU BITs.

In May, Denmark was reported to propose to its counterparts terminating existing Danish intra-EU BITs.

Also in May, it was announced that the Court of Justice of the European Union was seized with a request for a preliminary ruling from the German Federal Court of Justice to decide whether arbitration under an intra-EU BIT runs counter to EU law.

If and when the law on termination of Romanian intra-EU BITs is adopted and enters into force, it is unlikely that any subsequent termination of BITs will have immediate effect. Unless Romania’s counterparts consent to terminate the BITs in question, Romania will have to comply with the termination provisions provided therein. Romania’s BITs such as, for example, those with Germany, the UK, and France would continue to remain in force until the expiration of 12 months from the date of the notice of termination. Further, most BITs contain so-called “sunset clauses” which guarantee investment protection for several years after the treaty’s termination – 20 years in the case of Romania’s BIT with Germany, the UK, and France. Although Romania may seek to shorten the length of post-termination investment protection, it cannot do so unilaterally, but would need to obtain the consent of the other contracting party to the BIT.

Investors in Romania should follow the events closely and ensure that their investments continue to be covered by investment protection guarantees, including, where possible, by investment treaties that will not be subject to termination.

]]>https://www.hlarbitrationlaw.com/2016/09/romania-to-terminate-its-intra-eu-bilateral-investment-treaties/feed/0Canada agrees to the EU proposal on an international investment courthttps://www.hlarbitrationlaw.com/2016/03/canada-agrees-to-the-eu-proposal-on-an-international-investment-court/
https://www.hlarbitrationlaw.com/2016/03/canada-agrees-to-the-eu-proposal-on-an-international-investment-court/#respondFri, 04 Mar 2016 15:48:33 +0000http://www.hlarbitrationlaw.com/?p=1523On 29 February 2016, a revised text of the Canada-EU Comprehensive Economic and Trade Agreement (“CETA”) was released. Importantly, Canada and the EU have agreed to a number of substantive changes to the CETA’s Investment Chapter, including:

Stronger right to regulate: the EU and Canada fully preserve their right to regulate to achieve legitimate policy objectives, including protection of public health, safety, environment or public morals;

Narrowly prescribed standards of investment protection: a closed list of measures that could give rise to a violation of the fair and equitable treatment standard; similarly, indirect expropriation is limited to defined situations;

Canada accepted the EU proposal to replace the existing Investor-State Dispute Settlement (“ISDS”) system with an international investment court;

The Tribunal: the Tribunal will be permanent, transparent, and institutionalised; each dispute will be heard by a three-member division of the Tribunal;

The Appellate Tribunal: the Tribunal’s decisions may be upheld, modified or reversed by the Appellate Tribunal due to errors in the application or interpretation of applicable law or manifest errors in the appreciation of the facts, as well as on the basis of the grounds for annulment set out in the ICSID Convention;

Investors have no right to appoint an arbitrator: the members of the Tribunal (15 in total) will be selected in advance by the EU and Canada rather than appointed by the investor and the State involved in the dispute;

Transparency: all documents submitted will be publicly available, all hearings will be open to the public and all interested non-disputing parties will be able to make submissions;

Limitation on the damages awarded: monetary damages shall not be greater than the loss suffered by an investor;

Loser pays principle: the losing party will pay the costs of the proceedings; and

Requirement to disclose third-party funding.

The EU and Canada intend to sign the CETA in 2016 in order for it to enter into force in 2016. If and when in force, the CETA will replace the eight existing bilateral investment agreements between certain EU Member States and Canada. The remaining EU Member States, including Germany, the UK and France, do not have bilateral investment agreements in force with Canada.

CETA’s revised Investment Chapter reflects the main elements of the EU proposal for the Investment Chapter of the Transatlantic Trade and Investment Partnership (“TTIP”), as tabled to the United States on 12 November 2015. The TTIP negotiations are unlikely to conclude in 2016, and U.S. trade negotiators have offered muted and skeptical reactions to date to the EU proposals for an international investment court and an appellate mechanism. The Trans-Pacific Partnership (“TPP”) signed by the United States and 11 other Pacific Rim countries on 4 February 2016, on the other hand, contains a traditional ISDS mechanism.

The EU appears determined to move ahead with its new approach to investment protection. The EU also managed to implement its new proposals in the EU-Vietnam Free Trade Agreement published on 1 February 2016. Conversely, the EU-Singapore Free Trade Agreement, as published on 29 June 2015, contains a traditional ISDS mechanism. Both agreements are yet to be finalised and will only enter into force after being agreed upon by the Council of the EU and ratified by the European Parliament, among other steps.

The long-term significance of the EU proposals remains unclear. The outcomes of the EU’s ongoing trade and investment negotiations with the United States and Japan will provide barometers of whether the EU proposals will achieve broad acceptance in the global investment community. It also is uncertain whether other EU stakeholders, including EU Member States, will be agreeable to the European Commission’s approach. In the interim, the traditional ISDS system contained in existing EU Member States investment agreements remains intact and continues to be invoked regularly by investors.

]]>https://www.hlarbitrationlaw.com/2016/03/canada-agrees-to-the-eu-proposal-on-an-international-investment-court/feed/0Poland considers terminating its Bilateral Investment Treatieshttps://www.hlarbitrationlaw.com/2016/02/poland-considers-terminating-its-bilateral-investment-treaties/
https://www.hlarbitrationlaw.com/2016/02/poland-considers-terminating-its-bilateral-investment-treaties/#respondMon, 29 Feb 2016 17:32:46 +0000http://www.hlarbitrationlaw.com/?p=1516On 25 February 2016, Poland’s State Treasury announced its intention to terminate its Bilateral Investment Treaties (“BITs”). Poland currently has around 60 BITs in force, all of them signed between 1987 and 1998. Poland concluded BITs with almost every EU Member State (“intra-EU BITs”). It remains, however, the only EU Member State that is not a party to the ICSID Convention. The State Treasury indicated its intention to terminate all 60 BITs. Shortly thereafter a new announcement recommended that the Polish Government take the step of terminating intra-EU BITs only.

Over the past years there have been more than 20 known investment arbitration cases against Poland. 11 cases with a total amount in dispute of more than EUR 2 billion are currently pending against Poland. The actual amount in dispute may be even higher because the majority of cases against Poland remain confidential. Based on publicly available information in a number of cases investors (from Germany, France and the US) were successful in claims under BITs and Poland was ordered to pay compensation.

In its earlier statement the State Treasury said that Poland’s BITs were concluded to incentivize foreign investment in the early 1990s. According to the State Treasury since then the legal framework in Poland became sufficiently stable and “the courts can now rule on cases independently of politics so there is no need to retain investors’ privileges.” It also mentioned that investment arbitrations would be costly, and even when Poland prevailed, it would often be difficult to enforce awards on costs against unsuccessful claimants. The State Treasury concluded that BITs pose a threat to the country’s interests and should be terminated promptly.

In its later statement the State Treasury appears to have taken a less radical position as it now seeks to focus on intra-EU BITs only. It said that BITs are controversial from an EU law perspective and that Poland considered terminating intra-EU BITs already in 2011. Although there is an on-going discussion with regard to the future of intra-EU BITs, to date only three EU Member States (Czech Republic, Ireland, and Italy) decided to proceed with terminating all or selected intra-EU BITs.

Any termination of BITs by Poland will unlikely have immediate effect. Most BITs contain so-called “sunset clauses” which guarantee investment protection for several years after termination. For example, under both the UK’s and France’s BIT with Poland investments continue to be protected for 15 years after termination whereas under Germany’s BIT with Poland investments continue to be protected for even 20 years after termination. Although the Polish Government may endeavour to shorten the length of post-termination investment protection, it cannot do so unilaterally but would need to obtain the consent of the other contracting party to the BIT.

Notably, the announcement by Poland’s State Treasury comes at a time when the new Polish Government has also taken other measures that are of concern to international investors. For example, the Government planned to introduce a bank tax and legislation regarding the conversion of foreign currency loans, mostly at the expense of banks.

Investors in Poland should carefully follow events and make sure that their investments continue to be covered, to the extent possible, by investment protection guarantees, including by existing investment treaties.

]]>https://www.hlarbitrationlaw.com/2016/02/poland-considers-terminating-its-bilateral-investment-treaties/feed/0India’s New BIT and Arbitration Law Send Mixed Signals to Foreign Investorshttps://www.hlarbitrationlaw.com/2016/01/indias-new-bit-and-arbitration-law-send-mixed-signals-to-foreign-investors/
https://www.hlarbitrationlaw.com/2016/01/indias-new-bit-and-arbitration-law-send-mixed-signals-to-foreign-investors/#respondTue, 19 Jan 2016 22:05:44 +0000http://www.hlarbitrationlaw.com/?p=1490On December 28, 2015, the Government of India released the text for its revised model Bilateral Investment Treaty (BIT). In this release, the Government of India also announced that the Department of Economic Affairs will be leading all negotiations on BITs and investment chapters of trade agreements to ensure continuity between trade and investment issues.

One recent trend in global investment treaty policy is that the major world economies have carved out divergent approaches to investment treaty-making. The United States’ approach in the 2012 United States Model BIT is generally reflected in the text of the Trans-Pacific Partnership (TPP) investment chapter. The European Union’s proposal in the Trans-Atlantic Trade and Investment (TTIP) investment chapter negotiations takes its own approach by suggesting an international investment court to replace investor-State arbitration, among a number of additional innovations. Though negotiating with similar treaty-making partners as the United States, China’s approach has yielded different treaty terms than the recently-released TPP text; this can be seen in China’s recently-concluded agreements with Canada and Australia. On the other hand, Brazil and South Africa have avoided ratification of BITs in recent years.

India’s new model BIT text follows the trend of divergent approaches to investment treaty-making by focusing on a more defensive-minded strategy than in its prior treaties. This shift likely stems from the 2011 White Industries Australia Limited v. The Republic of India award against India and two tax-related cases brought against India in 2014 by Vodafone and Nokia. Some examples of India’s more defensive-minded approach can be seen in the following provisions of the new model BIT:

There is no explicit reference made to the Fair & Equitable Treatment standard, which is the most commonly invoked standard of protection in investment treaty disputes. Instead, the model BIT protects against “measures which constitute a violation of customary international law” through a closed list which includes: denial of justice, fundamental breach of due process, targeted discrimination, and manifestly abusive treatment.

An investor may not bring investor-State arbitration until it had exhausted local remedies, or until five years have passed in pursuit of the exhaustion of local remedies.

The definition of “investment” incorporates a test akin to the Salini factors which have been applied by some investment treaty tribunals. Further, the model BIT text requires that a qualifying investment have certain fundamental characteristics. Additionally, a number of types of investment are explicitly excluded from the definition of a qualifying investment, including portfolio investments.

The BIT protections apply to measures taken by national, state, and union territory governments, but do not apply to local governments.

The BIT’s protections do not apply to tax laws or measures taken to enforce tax obligations.

The text explicitly excludes treaty protection for pre-investment activities related to the establishment, acquisition, or expansion of any investment.

The BIT contains a broad denial of benefits clause, excluding the benefits of the BIT provided to investments or investors (1) owned or controlled, directly or indirectly, by persons of that State or a non-Party and (2) that have been established or restructured with the primary purpose of gaining access to the BIT’s dispute mechanisms.

The model BIT includes General Exceptions, such as those contained in GATT Article XX related to public morals and public order, health, compliance with laws and regulations, the environment, and cultural preservation.

Several of the model BIT’s clauses are more investor-friendly than those in the previous draft issued in March 2015. For example, the prior draft requires investors to hold majority-ownership or control to qualify for protection and allows for India, or its treaty partner, to bring counter-claims against investors.

In addition, India’s new arbitration law entered into force on December 31, 2015. This new law, which applies only to future cases absent the disputing parties’ agreement, seeks to attract more investment to India and facilitates more efficient and effective dispute settlement in India.

The new model BIT and arbitration law send mixed signals to foreign investors in India. The model BIT would narrow certain treaty-based protections, while the new arbitration law aims to make India a more desirable location for foreign investment. Thus, multinational companies will need to reassess their understanding of India’s risk profile. At the same time, the new model BIT is just that – a model – and it remains to be seen how India’s future investment treaties will be negotiated.

]]>https://www.hlarbitrationlaw.com/2016/01/indias-new-bit-and-arbitration-law-send-mixed-signals-to-foreign-investors/feed/0The European Parliament Votes to Remove Investor-State Arbitration from the Trans-Atlantic Trade and Investment Partnership (TTIP) Negotiationshttps://www.hlarbitrationlaw.com/2015/07/the-european-parliament-votes-to-remove-investor-state-arbitration-from-the-trans-atlantic-trade-and-investment-partnership-ttip-negotiations/
https://www.hlarbitrationlaw.com/2015/07/the-european-parliament-votes-to-remove-investor-state-arbitration-from-the-trans-atlantic-trade-and-investment-partnership-ttip-negotiations/#respondThu, 16 Jul 2015 12:54:55 +0000http://www.hlarbitrationlaw.com/?p=1417On 8 July 2015, the European Parliament voted favorably on a non-binding resolution that approves of the negotiation of the Transatlantic Trade and Investment Partnership (TTIP), an international trade and investment agreement between the United States and the European Union. Importantly, however, the resolution also supports the removal of investor-state arbitration from the TTIP. The European Parliament instead recommends to the European Commission negotiators framing the TTIP with their U.S. counterparts that investor-state arbitration be replaced with “a new system for resolving disputes between investors and states which is subject to democratic principles and scrutiny”.

The resolution also calls for transparency in these proceedings, which should be resolved by “publicly appointed, independent professional judges in public hearings”. Consistent with a “Concept Paper” previously issued by the European Commission, the European Parliament urges that the TTIP include an appellate mechanism to ensure the consistency of judicial decisions as well as the jurisdiction of courts of the EU and of EU Member States. Finally, the European Parliament calls for limited investment protection provisions covering national treatment, most-favored nation, fair and equitable treatment, and expropriation.

The European Parliament’s resolution marks the culmination of increasingly skeptical views of the EU institutions towards investor-State arbitration. European Trade Commissioner Cecilia Malmström had previously announced the EU’s new objectives for investment protection in TTIP. On 5 May 2015, these objectives were published in a “Concept Paper” that outlined certain EU priorities in negotiating the TTIP investment chapter. Commissioner Malmström’s objectives were then also endorsed by a resolution of the European Parliament’s Committee on International Trade (INTA Committee) on 28 May 2015. The 8 July 2015 resolution of the European Parliament appears to be based on the European Commission’s Concept Paper to some degree, though it would seem that the European Parliament has even more significant concerns over investor-State dispute settlement (ISDS) than the Commission.

The European Parliament’s vote is yet another challenge to efforts across the Atlantic to negotiate the TTIP, notwithstanding the recent affirmative vote in the U.S. Congress to grant “Trade Promotion Authority” to President Obama. Business groups were particularly disappointed by the European Parliament’s vote, urging both the European Commission and the Office of the United States Trade Representative (USTR) to negotiate a TTIP that will “include an effective ISDS system that protects investors from unjust discrimination and unfair treatment.” The tenth TTIP negotiating round is currently underway, and so next steps on this contentious issue will be a matter of “wait and see.”

Special thanks to Warren Bianchi for his assistance with this blog post.

]]>https://www.hlarbitrationlaw.com/2015/07/the-european-parliament-votes-to-remove-investor-state-arbitration-from-the-trans-atlantic-trade-and-investment-partnership-ttip-negotiations/feed/0Singapore High Court rules on the application of the PRC-Laos bilateral investment treaty to Macauhttps://www.hlarbitrationlaw.com/2015/02/singapore-high-court-rules-on-the-application-of-the-prc-laos-bilateral-investment-treaty-to-macau/
https://www.hlarbitrationlaw.com/2015/02/singapore-high-court-rules-on-the-application-of-the-prc-laos-bilateral-investment-treaty-to-macau/#respondMon, 09 Feb 2015 12:01:13 +0000http://www.hlarbitrationlaw.com/?p=1327In Government of the Lao People’s Democratic Republic (“Laos”) v Sanum Investments Ltd (“Sanum”) [2015] SGHC 15, the Singapore High Court allowed an appeal under section 10 of the Singapore International Arbitration Act (the “IAA”) to an UNCITRAL arbitral tribunal’s ruling on jurisdiction, finding that the bilateral investment treaty between the People’s Republic of China (“PRC”) and the Laos (the “BIT”) did not extend to the Macau Special Administrative Region of China (“Macau”).

Sanum, a Macau-based entity, had invested in Laos’ gaming and hospitality industry through a joint venture with a Laotian entity in 2007. In August 2012, following a dispute with its joint venture partner, Sanum initiated UNCITRAL arbitration proceedings against Laos under the BIT, claiming that Laos had levied unfair and discriminatory taxes.

In the arbitration, Laos challenged the tribunal’s jurisdiction on the basis that the investment protection offered under the BIT did not extend to Macau as the PRC did not exercise sovereignty over Macau until the territory was handed back to the PRC by the Portuguese in December 1999, some six years after the BIT was signed. The tribunal ruled, however, that the BIT did apply to Macau and that it therefore had jurisdiction. In reaching this decision, the tribunal relied on Article 29 of the Vienna Convention on the Law of Treaties 1969 (“VCLT”), which provides that a treaty is binding on the entire territory of a contracting state, and Article 15 of the Vienna Convention on the Succession of States in respect of Treaties 1978 (“VCSST”), which provides that in the event of a territory’s succession to another state the treaties of the successor state become binding on the territory.

Laos made an appeal of the tribunal’s jurisdiction ruling to the Singapore High Court under section 10(3)(a) IAA, which provides that any party may make such an application within 30 days of receiving the tribunal’s ruling. It was not disputed by the parties that the Singapore courts had jurisdiction to hear the appeal.

In considering whether the BIT applied to Macau, the court held that the articles of the VCLT and VCSST relied on by the tribunal only gave rise to a presumption that the BIT applied to Macau. Those articles provided two possible exceptions to this general rule where: i) a contrary intention appeared in the treaty, or ii) it could be otherwise established that the treaty should not apply to the territory.

The court found that the evidence submitted by Laos established an intention that the BIT did not extend to Macau and exception (ii) had therefore been met. The court was influenced in particular by two pieces of evidence which had not been presented to the tribunal, but which the court held admissible for the purposes of determining the application:

an exchange of letters between Laotian Ministry of Foreign Affairs and the PRC Embassy in Laos in January 2014 (after the tribunal’s ruling on jurisdiction) regarding the intention of the BIT, which the court accepted affirmed the common understanding between the two states at the time the treaty was signed that the treaty did not apply to Macau; and

a World Trade Organisation Trade Policy Report in 2001, which stated that Macau was signatory to only one bilateral investment treaty (with Portugal).

The court was of the view that there had been sufficient evidence before the tribunal for it to have reached the same conclusion, including a provision in a 1987 PRC-Portugal Joint Declaration which required that the PRC government decide at a future date whether treaties concluded by it should apply to Macau. The court also considered that Macau’s ability to enter its own bilateral investment treaties suggested it was not bound by the PRC’s treaties.

Having found that the BIT did not extend to Macau, and that no claim could therefore be made under the BIT, the court nonetheless went on to opine that Article 8(3) of the BIT, which provides that disputes “involving the amount of compensation for expropriation” could be submitted to arbitration, should be interpreted restrictively such that the arbitral tribunal in any event lacked subject-matter jurisdiction over Sanum’s expropriation claims.